The failed bet that cost JPMorgan Chase $2 billion and plunged the bank’s stock by more than 9% on May 11 has rattled the financial sector. This wasn’t the case of a vigilante trader who struck out on his own. It was a top executive at the shining steel sentinel of the U.S. investment-banking industry, vested with the full confidence of his bosses. And they all screwed up. As JPMorgan CEO Jamie Dimon put it on May 13 on Meet the Press, “We took far too much risk. The strategy we had was badly vetted, it was badly monitored — it should never have happened.”

It’s still unclear how the failed bet will hurt JPMorgan’s balance sheet. But while the loss doesn’t threaten the bank’s stability, it has irreparably damaged one of the financial industry’s most valuable assets: the credibility of Dimon, who for the past two years has been Big Finance’s manicured right hand in Washington, slapping away the regulatory feelers of the federal government.

As lawmakers drew up the 2010 Dodd-Frank financial-reform bill and regulators subsequently labored to craft rules to enforce it, Dimon was everywhere in Washington, counseling restraint. He told the Chamber of Commerce that new rules requiring firms to hold more safe capital in reserve could be the “nail in our coffin of big American banks.” He told reporters that stricter international guidelines were “blatantly anti-American” and that Paul Volcker, the former Fed chief who championed an eponymous rule prohibiting banks from making for-profit bets with their own money, “doesn’t understand capital markets.” The Commodity Futures Trading Commission’s approach to regulating derivatives, the same type of financial instrument that detonated catastrophically at AIG and just lost JPMorgan $2 billion, “would damage America,” Dimon said.

Dimon backed up his talk with money and influence. In 2010 and 2011, JPMorgan spent $15 million on lobbying, more than most other banks and nearly as much as the industry’s umbrella group, the American Banking Association. Dimon met with top officials like Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner — Dimon himself sits on the board of the New York Federal Reserve — and visited the White House more than 15 times. “He is kind of the security blanket for banks in Washington,” says Ted Kaufman, a former Democratic Senator from Delaware who worked on financial regulation.

Everywhere Dimon went, his most powerful argument was his own work. JPMorgan was the only major U.S. investment bank to come out of the financial crisis without posting an unprofitable quarter. It was the best and the biggest. Its balance sheet was ironclad because Dimon understood risk, and so too could other top bankers, he argued, without the most intrusive regulations to come out of Dodd-Frank. But that argument was undermined by last week’s $2 billion blunder.

“This is a major black eye for a firm that has been held in high esteem within the financial industry,” says Tennessee Senator Bob Corker, a Republican member of the Banking Committee who helped craft portions of Dodd-Frank, and who on May 11 called for a Senate hearing to investigate what went wrong at JPMorgan. “Any time something like this happens, it changes things.”

Dimon readily acknowledges that the incident has given ammunition to advocates of more-active government oversight. “This is a very unfortunate and inopportune time to have this kind of mistake,” he said on Meet the Press. But it’s not yet clear how much the policy will change. The bet in question would not have been banned under the Volcker rule if, as Dimon says, the position was classified as a hedge — insurance against another position — rather than a pure money-making scheme for the bank. The Volcker rule is still being written, and its scope could be expanded, but even then, there’s no guarantee that bets of this kind would be prohibited. The Securities Exchange Commission has opened an investigation too, but its impact on future behavior is limited. “The regulatory commissions are underwater,” Kaufman says. “What can they do? Will they shift some people over? I think they will. Will it have a major effect? No.”

Corker says he believes it’s important to identify what happened at JPMorgan and craft a smart policy response, but he’s also confident that some of the fail-safes and dummy-proof rules put in place by Dodd-Frank would have prevented the worst from happening. “Human beings will figure out ways of doing boneheaded things,” he says in explaining the importance of greater capital requirements and the Federal Deposit Insurance Corporation’s new powers to dissolve failing firms, which Dimon endorsed. “I think we are much better equipped.”

Kaufman, an advocate of breaking up the largest U.S. financial firms and segregating commercial deposits from investment banking, is less optimistic. “You know the canary in the mine?” he says of the JPMorgan bet. “The canary may not be dead, but it’s having a tough time breathing.”

As for Dimon, even though he’s owning up to his mistake, he doesn’t seem to be relinquishing his opposition to the toughest new financial rules. “Just because we’re stupid doesn’t mean everybody else was,” he said last week on a conference call disclosing the bank’s losses. But that’s just the problem: Dimon and his team at JPMorgan, of which three members resigned on May 13, were supposed to be the smartest guys out there.